The credit

The word credit has two meanings. It has come to the English language from Latin and it means "he believes" or "he trusts". In the earliest days the entries in the ledger were "debit" for "he owes" and "credit" for "he trusts" or "is owed".

As is known, the credit side of an account is the right-hand side. This may be because, historically, creditors were regarded as "good" because they trusted one; and the right hand has always been regarded as the "good" side. For example, all important guests generally sit at the right side of the host. The second meaning of the word credit is belief of others that a person, company etc. can pay debts, or will keep a promise to pay. "To extend" credit or to make sales on credit is to trust another person.

The double-entry system

The double-entry system evolved during the Renaissance. The first systematic presentation of double-entry book-keeping appeared in 1494, two years after Columbus discovered America. It was described in a mathematics book written by Luca Paciolli, a Franciscan monk who was a friend of Leonardo da Vinci. Goethe, the famous German poet and dramatist, referred to double-entry book-keeping as "one of the finest discoveries of the human intellect".

In Britain the first book on the double-entry system was written by Hugh, one schoolmaster, who taught arithmetic. No copy of this first book has survived. Later some more books describing this new method were published. English businessmen began to employ this recording device.

Double-entry accounting In Russia

The primary advantage of double-entry accounting, to many historians of accounting, was that it abolished confusion in the accounts by creating order out of chaos.

In Russia double-entry accounting was introduced to the state administration under Peter I. It was first applied for the Admiralty and the army. Peter I required the managers of all the mining and smelting works to maintain records of their operations, thus providing a basis for the collection of national statistics.

The first large enterprise to use double-entry was the Demidovs. It had over 50 works, mostly iron-making in the Urals. By the end of the 18th century the Demidov enterprise had acquired sophisticated accounting techniques.

The importance of the double-entry system

The importance of the double-entry system is difficult to appreciate. Before the invention of double-entry book-keeping accounting records had been disorganized. Merchants literally had not known the state of their finances. The use of this technique had a positive effect on both business and trade. Some scholars think that there was a close relationship between the adoption of the double-entry system and economic growth in many countries. In the middle Ages the knowledge of this technique was a pre-condition of rapid economic growth of most European countries. And the other way round, where this technique was lacking or slows to penetrate, economic development was delayed.